U.K. Treasury Chief Details Spending Cuts

By ALISTAIR MACDONALD And LAURENCE NORMAN

LONDON—In a gambit to tackle its record debt, the U.K. government detailed sweeping spending cuts Wednesday, announcing double-digit budget reductions for everyone from the police to welfare recipients and the Queen.

Treasury chief George Osborne stuck to a previously announced timetable for paring back the budget deficit of £155 billion ($243.37 billion) through a £113 billion fiscal tightening over the next five years, including £83 billion in spending cuts. The steep cuts are a gamble that weaning the U.K. off robust public spending will reinvigorate the private sector without undercutting the country's sluggish recovery from the recession and the global financial crisis.
"Today is the day when Britain steps back from the brink, when we confront the bills of a decade of spending," he told the U.K. Parliament.

The U.K.'s plans pitch it into the center of an international economic debate in which some countries, mainly in Europe, are calling for austerity measures while others, led by the U.S., say stimulus is still necessary. The U.K. spending review represents an attack on the size of the state in a country where public spending represents around 50% of the economy—one of the largest shares in the developed world.
But while Mr. Osborne announced the biggest cuts in spending since World War II, he calculated that average department budget cuts will be 19% over the next four years, rather than the 25% he had previously predicted. That took wind out of opposition criticisms that he was cutting too fast too far, given that they themselves had talked of 20% cuts.

Mr. Osborne also announced investment in capital projects and said he would protect the education and science budgets in a bid to spur private growth.
Still, the coalition government's cuts will lead to the loss of 490,000 jobs in the public sector by 2015 and will likely herald a period of industrial unrest in the U.K. European countries from France to Greece are seeing disruptive industrial action, and some public workers in Britain have mounted short strikes in recent weeks.

The government will also face accusations that it is damaging Britain's important arts industry, impairing law enforcement and weakening the country's armed forces.
"Painful job losses are inevitable but the real challenge, working out how to deliver services with fewer people, remains to be tackled," said Jon Sibson, a public-sector expert at accountants PricewaterhouseCoopers LLP.
Government departments now will go away and work out what the cuts mean, before returning in a month to publish a four-year business plan.
"It is a hard road, but it leads to a better future," Mr. Osborne said of the spending cuts. "We are going to bring the years of ever-rising borrowing to an end. We are going to ensure, like every solvent household in the country, that what we buy, we can afford."
His voice growing hoarse, Mr. Osborne announced annual cuts in police spending of 4% for the next four years; deep cuts in the central government grant to local government, of 7.1% a year in inflation-adjusted terms; a 14% cut for 2013-14 to the Royal Household's budget and a 33% hit to the budget of his own Treasury department.
Mr. Osborne also added an extra £7 billion of cuts to the £11 billion already earmarked for the welfare bill. The U.K. Treasury estimates that spending on a raft of state benefits—from unemployment compensation and worker disability to government retirement benefits, but excluding health care—will total around £200 billion in fiscal 2010-2011, about 14% of the country's gross domestic product.
There was little immediate reaction on foreign-exchange or gilt markets to Mr. Osborne's statement.

Since taking office in May, the government has insisted that deep and immediate spending cuts would help the U.K. avoid a debt crisis and restore the confidence needed to ensure a strong economic recovery.
However, the opposition Labour Party has said the spending cuts will endanger the economy, risking sending the U.K. back into recession after the deep, protracted downturn of 2008-9. Labour, which had also promised significant cuts before the election, says a renewed downturn would risk worsening the public finances, with weak growth suppressing tax revenues.
"The rush to cut the deficit endangers the recovery and reduces the prospects of employment in the short term and prosperity in the long term," said Alan Johnson, the opposition Labour Party's Treasury spokesman. (Fonte: Wall Street Journal)